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Topic: Ratesetter (P2P lending) (Read 2183 times)

For better or worse I have discovered Ratesetter. A friend said they were going to give it a go so me being the person I am researched the hell out of it over an evening on the weekend (including cynical Reddit discussions, Product Reviews and a 500 post Whirlpool thread).

Having read through the disasters befalling our American comrades on Lending Club, I was heartened to discover the following differences which makes Ratesetter more appealing:

1) The provision fund - no lender has ever lost a $ of capital2) That Ratesetter does a proper, thorough credit check, complying with responsible lending laws.3) That some of the loans are secured where possible.4) That the borrower pays all fees, charges, costs and Ratesetter's interest margin. As a lender you get the return you choose - the interest rate you decide to lend at. No deductions.5) Centrelink as your main source of income will disqualify you. The average borrower is 42 years old earning $83,000 per year.6) You can download the entire loan book and analyse it yourself! As a data nerd I love this.

I am dripping my tax refund and upcoming work bonus in over the next couple of months, figure 1-2% of my net worth is ok to use for starters.

Some self imposed rules: 1) That I would like to achieve a return of 3% above my mortgage offset account (i.e. 4.5% + 3%, soon to be a little more with recent rate rises). 2) At the first sign of trouble / increasing default rates and when the provision fund starts getting depleted I'll set it to auto withdraw. We haven't seen how Ratesetter Australia performs in a recession, so that will be the main concern.

For now, it is providing a useful distraction for me from Facebook and Commsec - the past couple of days have not been nice on the markets and I'm kinda glad I've found something to take my attention away from that crap social media rubbish.

Anyway, so far I have 6 x $250 loans at an average rate of 8.3%. I am ok with that, putting in $500 a day for the foreseeable future.

Hi Marty,I've had a crack at it both as a borrower first and then as a lender.

From the borrower's perspective I found the whole process straightforward and I'm not sure why it is not more popular as the rates for my situation were much better than the traditional options.

As a lender I initially dabbled with the 1 month investment option but quickly found that there was too much time where the funds were sitting idle (time to match to a borrower, time for loan creation, time for funds to become available at the end of the period). When you take into account of all these delays it must have an impact on the effective interest rate your money is earning.

We got a bit more serious and tried 10K with the 3 year loan option. However, early repayments are still a pain for lenders, we locked into a 3 year commitment but the borrower can repay it at any time (great for them). An early repayment means that you suddenly get part of your capital back and you have to have a plan on how to reinvest those funds again. This resulted in us ending up with lots of little loans, each with their own interest rates, repayment dates, interest payment dates and timelines. Even with the auto reinvestment settings (unless maybe you use the market rate option) it was still more work than we expected.

One thing that was never clear to me and always bugged me is the interest rates that the borrowers receive. Assuming borrowers are receiving different rates to each other based on their circumstances, then this is not visible to lenders and there is no way to take advantage of it on the lending platform. The way I saw it is that you had to invest at or only just above the market rate so your funds got matched to a borrower. This has resulted in an "a race to the bottom" for the rates of who is willing to accept the lowest rate of return so their money is matched first.

Other things to note; we haven't had an issue with defaults or late repayments on our loans so haven't tested the provision fund.

Conclusion: In the end we have chosen to move away from Ratesetter and will be reinvesting the funds with our other ETF & LIC investments as they become available.

This is just my experience as a user of the system, the normal disclaimers regarding these being my own opinions and that your experience may differ apply!

Yeah good points. I'm not going anywhere near the one month loans - these don't make sense for me, and I presume they only make sense for people whose opportunity cost is a term deposit rate. Also yeah a 3 day lag in funds in and out will knock 10% off your return.

Borrowers pay an interest rate 10% more than the rate their loan has been matched at. (RS takes that 10%). So if a loan has been matched at a rate of 7.9, 8 and 8.1% for example, the borrower will be paying 8.8% plus fees, and the lenders get the rate they've agreed to (7.9, 8 and 8.1%).

I accept it is a race to the bottom, and the market rate will tend towards whoever has the lowest opportunity cost. However in the week I've been on it, I've noticed that there is some sense and offers are not chasing the bids down. Good to see that lenders seem to be being sensible about it.

In analysing the loan book it was interesting to see that no "Green" Loan has ever defaulted... the quality of borrowers taking out these type of loans appears to be much higher, though the interest rate is lower. In some respects the market for those loans is a little rigged, because (Kevin Rudd's - remember him?) Clean Energy Finance Corporation is funding $20m on the platform, and they seem prepared to accept 6.4%...

I've had $10k in there, in both 3 and 5 year terms. I've had no issues with them. Now down to $2k due to early principal repayments.

That said, I am not investing anything with them and have given up on them as a platform. With those long-term loans, there's just no way to get the money back out if you need it and that doesn't sit well with me.

That said, if Shorten gets his franking credit policy into law, I'll be needing a source of unfranked income, so who knows...

I've had $10k in there, in both 3 and 5 year terms. I've had no issues with them. Now down to $2k due to early principal repayments.

That said, I am not investing anything with them and have given up on them as a platform. With those long-term loans, there's just no way to get the money back out if you need it and that doesn't sit well with me.

That said, if Shorten gets his franking credit policy into law, I'll be needing a source of unfranked income, so who knows...

haha - yes I see how this could be a benefit to take advantage of franking credit rule changes in future.

I'm not too concerned about the 5 year lock up... as you say, a significant proportion get prepaid so money tends to come back faster than expected.

We have a lot more than 1-2% of our net worth in there, and have been using the platform for at least 4 years.

We love it! The ability to automate everything from re-investing to auto-withdrawals puts it on top of the other Aussie P2P platforms in my opinion. The returns (still averaging 8-9%) are the reason we have so much of our net worth in there, and the fact that we already have considerable real estate investments, and think the stock markets are a bit risky at this point in the cycle.

The early repayments (average for us has been 10-20% of the total for the 3-5 year loans paid back early each year) are a positive for me, although they do add a bit of a time commitment to reinvest the large chunks exactly how you want them. The reason I don't mind the early repayments, along with the fact that all payments on the longer loans are paid back P&I (not interest only), is that it provides a lot of liquidity and flexibility over the life of the loan.

You have quite a lot of money coming out each month in P&I payments and early repayments, so in the event of a stock market crash or a decision to move the money elsewhere, you can immediately set everything to auto-withdraw each week, and not re-invest anything. Each month you'll be getting a significant sum and over the first year or two close to half your investments could be out to do what you want with.

Also they're extremely reliable as a platform. In almost 5 years we have not had a single issue that we needed to contact them about, despite thousands of loans matched, and hundreds of deposits/withdrawals over that period.

That nice to hear. I haven't been on long enough to get one repayment yet though :)

Up to $7,500 on the platform now, a mix of 3 & 5 year at an average of 8.6%. Seems like the volume is definitely picking up as compared to 3 and 6 months ago. I would assume a lot of this is due to credit becoming much less freely available form the Banks.

I've been a lender on rate setter for about three years now. Everything is set to auto reinvest so I have a ridiculous long list of little loans but I don't intend to withdraw anything anytime soon, but if I had to I would just change my settings as mentioned above. All I do is track the total interest received each month and it works out to be 8-9% per annum so I'm happy to keep some of my cash parked there.

We have a large sum invested with Ratesetter which works out to be about 10% of our NW. I really love it.

Auto-reinvesting the income does lead to lots of small loans as other people have said but I just log in and check there's no money sitting around where it shouldn't be every couple of weeks. Eg if something weird happens one day, I can have money put out to lend at 9.5% but then the market rate drops so it sits there not getting matched. It's easier to cancel and put it back out at 9.0%.

Once you've been on there a bit you see that the long term rate for 5 years is 9%. Generally it only drops when a newbie joins and lends a bunch of money below that. My account is set to reinvest at 9% instead of the market rate - I'd rather wait a few days than have money locked up for 5yrs at 8.5%. The way it works is that it will be reinvested at a minimum of 9% so I've got a few small loans at well over that!

ETA: The majority of our loans our for 5yrs but we have a few 3yrs and one 1 year left I think - we are in it for retirement income so once we click the switch we'll be collecting the income not reinvesting and want to max it. If we need funds that's what Vanguard is for.

Marty, I assume you’ve fully offset your Ppor mortgage and are talking about the offset on IPs to be considering this?

Yes. It really wouldn't work otherwise.

I'm basically going to be clearing $250 profit after tax and risk-free opportunity cost for $10,000 invested so it's more of a "lets learn about how this shit works" investment more than anything else.

The rates on the five year loans have gone crazy. They have been high since September but my last pot of income got re-invested at 10.1% and the bulk of the lending orders are at over 11%! I'm not sure what's going on as the monthly rates and 3yr rates seem stable.

Assuming all the loan repayments count as taxable income (minus the principal)?Does Rate-setter give a neat tax form at the end of financial year, or has this been a bit of work for those using the platform?

Assuming all the loan repayments count as taxable income (minus the principal)?Does Rate-setter give a neat tax form at the end of financial year, or has this been a bit of work for those using the platform?

Yep you get a statement. Mine's not available yet this year tho. It has income and expenses for the tax return.

It's the result of the credit squeeze caused by the banks restricting their lending caused by the Royal Commission

Does Ratesetter now have to offer people higher rates because of the squeeze - eg someone that previously qualified for 9% loans has to have an 11% loan? As well as new customers coming over because they've been declined by banks. And why would the one month and 3 yr markets remain the same - do banks not normally loan for such short periods. Idk I've never had a personal loan, don't actually know how it works.

I know nothing about Ratesetter's behaviour to borrowers, so I'm just guessing.

The rate that the borrowers get is driven by supply and demand, like any properly functioning market. They can get a 9% loan if someone is offering one (ignoring Ratesetter's margin) but lenders are getting deals at 11% so that's where the market rate sits for now.

It's the result of the credit squeeze caused by the banks restricting their lending caused by the Royal Commission

Does Ratesetter now have to offer people higher rates because of the squeeze - eg someone that previously qualified for 9% loans has to have an 11% loan? As well as new customers coming over because they've been declined by banks. And why would the one month and 3 yr markets remain the same - do banks not normally loan for such short periods. Idk I've never had a personal loan, don't actually know how it works.

Nope - I think it is simply demand exceeding supply at the particular point in time. Good for lenders, not as great for borrowers.

If a lender offers a loan at 10%, ratesetter adds another 1% as their margin. The borrower then pays back their loan at 11% + fees + an additional payment to the provision fund.

If the rate goes any higher it might be better for borrowers to simply stick with credit cards.

Yes that's right! Yet you got that 14% loan a while ago and it regularly leaps up that way on a Friday night. There doesn't seem to be as much money being lent at the moment either. Well, whatever's going on, I'm pretty happy.

I got sent an invite to a drinks night they are hosting for lenders later the month. Did you get one too @Fresh Bread? Might see you there if you are going along!

I wasn't going to go because I don't like awkward small talk. Hubby was keen tho & he works in the city.

I don't like awkward small talk either. I do, however, like free beer and wine....

I just got a follow up email and it says you can bring a guest. So definitely no need to talk to strangers and they give you free drink and nibbles. I still think I'm unlikely though as I work til 7.15 on a Thursday and not in the city.

Went along today and had a chat with a couple of staff members, including the head of credit risks, a couple of the marketing reps, and the CEO Daniel Foggo.

They are genuinely passionate about the business and want to see it grow, and even cheekily suggested a recession would be good, because black marks showing up on credit files will assist them in screening and knocking back borrowers applications!

Ratesetter itself is forecast to become profitable soon, but the have just done another round of fundraising with existing shareholders and a couple of new ones, in order to pay the bills for another year. Good to know they are running the business in a manner that they expect to be here long time into the future.

They believe (5-yr) rates are quite high in comparison to the UK market, and they foresee rates falling when the liquidity facility is introduced soon.

So now the rates on 5 year loans seem to have hit new lows (8%). Anyone any ideas why? I've got money waiting over a month to reinvest. I might withdraw the interest and put it in Vanguard until it picks up.

I've been keeping an eye on their stats and the lending volume went on a steady decline since beginning of November. Before they were routinely lending between 3.7 and 4.5 mil per week, now it's about 2.5m. Add to that the early withdrawal feature that went live not too long ago could have enticed lenders to throw in more money. So it does appear to be a supply and demand related.

Another thing of note is the provision fund balance. In the last two months it decreased from 11.8 mil to 11.2m. And that's with all the lending in the background that's supposed to contribute to the provisioning balance. With that I concluded that the margin of safety has decreased beyond my comfort level and started withdrawals.

So now the rates on 5 year loans seem to have hit new lows (8%). Anyone any ideas why? I've got money waiting over a month to reinvest. I might withdraw the interest and put it in Vanguard until it picks up.

I've been keeping an eye on their stats and the lending volume went on a steady decline since beginning of November. Before they were routinely lending between 3.7 and 4.5 mil per week, now it's about 2.5m. Add to that the early withdrawal feature that went live not too long ago could have enticed lenders to throw in more money. So it does appear to be a supply and demand related.

Another thing of note is the provision fund balance. In the last two months it decreased from 11.8 mil to 11.2m. And that's with all the lending in the background that's supposed to contribute to the provisioning balance. With that I concluded that the margin of safety has decreased beyond my comfort level and started withdrawals.

Yeah I've noticed these points too. Volumes are down to what they were in late 2017. Not enough borrowers and the # of lenders has increased by 12% since September. Holding account balances are up substantially too.

Ride it out - I'm hoping a few more lenders like yourself @nofriends start to pull money out - might make it better for those remaining :)

30% is quite a lot! We've got 10% in there. I've withdrawn the amount that was sitting around and set it to only reinvest capital and spit out the rest going forward. I'll see how we go with rates and if they don't improve I may as well withdraw the capital too.

It used to be nearly 50, talk about risk management... But hey, there is progress! It just takes an awful lot of time with them when one is not keen on partying with 3 percent of capital for an early withdrawal.